Issue 10 - How to Avoid the Cash Flow Rollercoaster  August 25th 2022

How to Avoid the Cash Flow Rollercoaster

Managing cash flow is the bane of every freelancer's existence.

I recall this tongue-in-cheek statement made by a salesperson friend: "One day you have chicken; the next day you have feathers."

He was referring to sales, but the same holds for freelancer cash flow — one month, you have more than enough, and the next, not enough.

How do you manage uneven income? Aside from listening to the podcast with my guest Urban Adams, a financial investment advisor, here are some tricks of the trade that have worked for me and many others.

Always Be Marketing

You may recall the line from the 1992 film Glengarry Glen Ross spoken by Alec Baldwin's character Blake: "Always Be Closing." You may also remember the quote from advertising tycoon David Ogilvy: "When times are good, you should advertise; when times are bad, you MUST advertise."

My wife Amie, a freelance paralegal, is the perfect example of this principle. Even when she has enough business to keep her busy 30+ hours per week, she still sends letters to area attorneys, letting them know about her services.

The lesson: Never rest on your laurels — always be marketing.

Make Contract Payment Terms Clear

Decide what works best for you regarding payment for services and clearly state the terms in your contracts. Discuss those with the client. If they sign the contract, they understand they are obligating themselves to those terms. But it's up to you to determine a payment arrangement to keep your cash flow level.

Set Aside Funds for Estimated Taxes

My podcast guest Urban Adams clarifies that you must set aside funds in a separate account exclusively for taxes and pay the estimated amount quarterly. What does that have to do with cash flow? Everything. Waiting until the end of the year to settle your tax debt will put a massive dent in your income.

Save for Slow Months

Not only should you set money aside to pay taxes, but when business is good, you should also save money to prepare for slow periods (and there will be slow periods).

A proverb says, "[I]n the summer, ants gather and save all of their food. So when winter comes, there is plenty to eat." That's good advice for us humans, too.

Keep Track of Your Cash Flow

It makes sense to keep tabs on income and expenses. For years, I have used Freshbooks for invoicing and expense tracking. However, I am considering switching to Quickbooks for monthly bookkeeping. It's not something I'm particularly good at, but it's a necessary step if I expect to manage cash flow effectively.

Separate Personal and Business

A dedicated business bank account is the best way to track cash flow. Enough said about that.

Make It Easy for Clients to Pay

Have you ever waited anxiously for the postman to arrive, hoping a check was in the mail? Remember getting that sinking feeling in the pit of your stomach when you find it didn't come?

I determined long ago that paying by check would not work for me. I only take payments online or via electronic bank transfer and advise other freelancers to follow suit.

Offer a Retainer Option

I have one retainer-based client relationship. I wish I had several because that is one sure way to make cash flow rock solid. I need to offer a retainer option when establishing client relationships — and you should think about it, too.

A lot of what you just read is common sense. But we can all use a friendly reminder from time to time, right? Below, I've included links to a few articles that provide additional cash flow management information.

Paul Chaney